Investment Vocabulary

1. Investment Vocabulary

2. Appreciation • An increase in the basic value of an investment

3. Depreciation • A decrease in the basic value of an investment

4. Bear Market • A market characterized by generally falling prices over a period of several months or years

5. Blue Chip • Common stock of a company known nationally for the quality of it’s products and it’s profitability

6. Bond • Certificate representing a loan of money to a corporation or government for a specific period, in exchange for a promise to repay the bondholder the amount borrowed plus interest.

7. Broker • A representative who handles transactions related to investor’s order to buy and sell securities.

8. Bull Market • A market characterized by generally rising prices over a period of several months or years.

9. Capital Gain • The gain obtained when a security is sold for more than the purchase price.

10. Capital Loss • The loss incurred when a security is sold for less than it’s purchase price.

11. Caveat Emtpor • Latin Phrase meaning, “Let the buyer beware”

12. CFP • Certified Financial Planner • An individual who has completed the education requirements of the International Board of Certified Financial Planners

13. CFTC • Commodity Futures Trading Commission • The federal regulatory agency that monitors the futures and options market

14. Commission • A broker’s or adviser’s fee charged for buying or selling securities for an investor.

15. Common Stock • The most basic form of corporation ownership. Owners of common stock have a claim on the assets of a company after those of preferred stockholders and bondholders.

16. Compound Interest • Interest earned on interest that is added to the principal.

17. Discount • Sale of a bond at a price less than face value

18. Diversification • Spreading investment funds among different types of investments and industries

19. Dividend • Payment received by stockholders from the earnings of a corporation

20. DJIA • Dow Jones Industrial Average • Price-weighted average of actively traded stocks

21. Face Value • The amount the bond is worth when it matures.

22. FDIC • Federal Deposit Insurance Corporation • An agency of the federal government created to guarantee bank deposits

23. Financial Planner • A person who advises others about financial issues. This person may need to be registered as an investment adviser if he/she provides investment advice for a fee.

24. Futures Contract • A legal commitment to buy or sell a commodity at a specific future date and price.

25. Hedging • The process of protecting an investment against price increases.

26. Inflation Risk • The risk that the financial return on an investment will lose purchasing power due to a general rise in prices of goods and services.

27. Insider Trading • The illegal use of investment information not generally known to the public.

28. Interest • For the investor, interest is the payment received from a financial institution for lending money to it.

29. IRA • Individual Retirement Account • A tax-defrred savings account

30. Liquidity • The ease with which an investment can be converted into cash.

31. Load Fund • A mutual fund purchased directly by the public that charges a sales commission when bought.

32. Market Risk • The risk that the price of stocks, real estate, or other investments will go down due to business cycles or other causes.

33. Mutual Fund • A company that invests the pooled money of its shareholders in various types of investments.

34. NASAA • North American Securities Administrators Association • An organization of securities administrators charged with enforcing securities laws and protecting investors from fraudulent investments.

35. No Load Fund • A mutual fund purchased directly by the public and does not have a charge for buying.

36. Odd Lot • A unit of less than 100 shares of stock

37. P/E Ratio • The price of a stock divided by per share earnings for a 12 month period

38. Penny Stocks • High risk stocks that generally sell for less than $3 and are not listed and traded on any exchange or stock market. • (Con Artists often deal in Penny Stock frauds)

39. Ponzi Scheme • An illegal investment scam named for its inventor, Charles Ponzi.

40. Portfolio • The total investments held by an individual

41. Preferred Stock • Ownership in a corporation that has a claim on assets and earnings of a company before those of common stockholders but after bondholders.

42. ROI • Return on Investment • A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.

43. Risk • In an investment, the uncertainty that you will get an expected return. • In insurance, the uncertainty whether a loss will occur.

44. Risk Tolerance • A person’s capacity to endure market price swings in an investment. • Risk tolerance is an important component in investing. An individual should have a realistic understanding of his or her ability and willingness to stomach large swings in the value of his or her investments.

45. Round Lot • 100 Shares of one stock

46. Securities • A broad range of investments instruments, including stocks, bonds, and mutual funds.

47. SEC • Securities and Exchange Commission • A federal agency established to license brokerage firms and regulate the securities industry.

48. Stock • An investment that represents ownership of a company

49. Tax Exempt Investments • Investments not subject to tax on income earned.

50. Time Value of Money • An increase in the amount of money over time as a result of investment earnings.